Sunrun Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the filing does not provide standalone fourth-quarter results. Dollar amounts below are in U.S. dollars.
Business context
Sunrun designs, installs, sells, owns and maintains residential solar systems in the United States, with battery storage and related offerings in selected markets. Most customers use 20- or 25-year leases or power purchase agreements. Sunrun finances system deployment through tax-equity funds, non-recourse project debt and other capital. At year-end, reported networked solar capacity was 5,667 MW, up from 4,677 MW, and gross earning assets were $12.43 billion, up from $9.67 billion. More than 40% of customers were in California.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $2.321 billion | $1.610 billion |
| Operating loss | $(662.2) million | $(666.2) million |
| Net loss, consolidated | $(849.6) million | $(980.5) million |
| Net income (loss) attributable to common stockholders | $173.4 million; $0.82 basic EPS | $(79.4) million; $(0.39) basic EPS |
| Net cash used in operating activities | $(848.8) million | $(817.2) million |
| Net cash used in investing activities | $(2.086) billion | $(1.686) billion |
| Net cash provided by financing activities | $3.037 billion | $2.646 billion |
Revenue increased 44% year over year. Customer-agreement and incentive revenue rose 19% to $983.0 million; solar-system and product sales rose 71% to $1.338 billion. The filing attributes growth principally to new systems placed in service, increased system-sale demand (particularly through retail partners), higher system-sale prices, and product demand.
Gross profit was approximately $298.7 million, or 12.9% of revenue, versus $244.5 million, or 15.2%, in 2021. Costs of solar-system and product sales rose faster than that category’s revenue, taking its cost ratio to 88% from 85%. Operating expenses increased 31%, including a 20% increase in sales and marketing; general and administrative expense declined 27%, mainly due to lower stock-based compensation and integration-related costs.
Interest expense, net, increased 36% to $445.8 million, primarily reflecting additional non-recourse debt. Other income was $260.7 million versus $22.6 million, including $189.7 million of gains on derivatives and a $47.3 million gain on an equity investment. These items materially affected reported results. The positive result attributable to common stockholders should be distinguished from the consolidated net loss: the allocation of losses to noncontrolling and redeemable noncontrolling interests under the funds’ HLBV accounting method drove the difference.
Liquidity, debt and capital resources
Year-end cash was $740.5 million; restricted cash was an additional $212.5 million. Current assets were $2.098 billion and current liabilities $1.155 billion. Sunrun reported $607.4 million of committed and available investment-fund capital, restricted to purchasing and installing solar systems, and stated that cash, fund commitments and available borrowings should meet anticipated cash needs for at least 12 months.
Reported debt, net of discounts and premiums, totaled $8.399 billion, compared with $6.503 billion a year earlier; this includes substantial non-recourse project debt. The balance sheet included $7.501 billion of non-recourse debt, net, $505.2 million drawn on a $600 million revolving credit facility, and $392.9 million of convertible senior notes, net. The facility matures in January 2025; the 0% convertible notes mature in February 2026. Sunrun reported compliance with debt covenants at year-end. Operating cash outflow increased, while investing outflow primarily funded solar systems and included a $75 million investment in its home-electrification venture.
Material changes, outlook and risks
- The California Public Utilities Commission’s December 2022 decision changes compensation for exported solar power under a new net-billing tariff, scheduled to apply to transitioned customers from April 2023. Sunrun warned this could reduce the economics of solar-only offerings in a key market, while potentially increasing demand for solar-plus-storage.
- The Inflation Reduction Act extended and expanded tax-credit opportunities, but Treasury and IRS guidance remained incomplete. Sunrun depends on tax incentives and tax-equity investors to finance customer systems and noted uncertainty in qualifying for and monetizing some credits.
- Management described continued macroeconomic uncertainty, including rising interest rates, inflation, supply constraints and pandemic-related effects. Higher rates can increase financing costs and reduce the value or availability of capital for new deployments.
- Additional risks include dependence on a limited supplier base, tariffs and import enforcement, installation capacity and project backlog, customer cancellations, competition and changing utility rate structures. California concentration increases exposure to regional policy and operating disruptions.
- The filing provides no specific numerical FY2023 financial guidance. Management stated its expectation that available cash, commitments and borrowing capacity would cover anticipated needs for at least 12 months, while emphasizing continued reliance on external financing.
- An IRS audit of an investment fund’s solar-system fair-market-value determination could lead to indemnity exposure; insurance applies to certain covered funds but includes limitations. The filing says Sunrun could not determine the audit’s outcome. It reported no current belief that ordinary-course legal matters would have a material adverse effect.
Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The auditor identified noncontrolling and redeemable noncontrolling interests and the HLBV allocation methodology as a critical audit matter.
Important facts for investors to verify
- How much of revenue growth and earnings attributable to common stockholders is repeatable, given the consolidated net loss and large derivative-related gains?
- Whether operating cash use, system investment needs and debt growth remain supportable through future cash generation and available external financing.
- The realized effect of California’s net-billing tariff on customer demand, pricing, storage mix and project economics.
- Whether Sunrun can access tax-equity and debt capital on acceptable terms and translate IRA incentives into funding benefits.
- The sensitivity of gross earning assets to discount rates, customer defaults and renewal or purchase assumptions; the reported $12.43 billion estimate uses management assumptions, including a 5% discount rate.
- The status and potential financial consequences of the IRS fair-market-value audit, and any resulting changes to indemnities, insurance or tax-credit treatment.